M. V. R. Prasad, Am
1. This appeal by the assessee is directed against the order of the CIT(A), dt. 7th June, 1995, for the asst. yr. 1992-93 in which he confirmed, inter alia, the addition of Rs. 34,08,275 under the short-term capital gains computed under the provisions of s. 50 of the IT Act, 1961.
2. This appeal throws up an interesting but a complicated issue. However, the facts of the case lie in a narrow compass.
3. The assessee-company sold certain premises and the sale proceeds were of the order of Rs. 52,21,000. The written down value (WDV) of the assets sold was Rs. 7,88,738. The assessee sought to purchase two premises vide two separate agreements within the financial year as per the details given below :
Date of Agreement Premises No. Purchased From Amount 24-2-1992 1407, Prasad Mrs. Chitralekha 40,41,001 Chambers P. Shah
30-3-1992 134, Ramesh D. Shah 16,60,000 Pancharatna
The above agreements are at pages 57 to 70 of the assessee's paper book. The relevant portion of the agreement dt. 24th Feb., 1992, entered into between Mrs. Chitralekha P. Shah and another and the assessee-company reads as under :
"Whereas the vendors are members of the Prasad Chambers Premises Co-op. Society Ltd. (hereinafter referred to as "The said society" who are the owner of the building known as Prasad Chambers) and as such member, the vendors have 5(five) shares of the face value of Rs. 50 each of the said society and are in sole and exclusive use and occupation of Apartment No. 1407 on the 14th Floor of the said building (hereinafter called 'The said apartment').
And whereas the Vendor have agreed to sell and transfer to the purchaser and the purchasers have agreed to purchase and accept from the vendor the said 5(five) shares including all the rights incidental to the ownership of the said shares and membership of the society and the said Apartment at or for the sum of Rs. 40,41,001 (Rupees forty lacs forty one thousand and one only) and upon certain terms and conditions.
And whereas the parties hereto are desirous of recording the terms and conditions of the said agreement of sale.
NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS :
1. The vendors hereby agrees to sell and transfer to the said purchasers and the purchasers agree to purchase and acquire the said shares with all the rights incidental to the ownership of the said shares and the said agreement (excluding furniture, fixtures, phone and A. C.) and membership of the society and deposits like sinking funds upon the same terms and conditions on which the vendors now holds the same for a lumpsum of s. 40,41,001 (Rupees forty lacs forty one thousand one only) which is paid on execution of this agreement.
2. The purchasers takes the transfer of property with all the restrictions and requirements of Chapter XX-C and will co-operate with the Vendors at all times in complying with those requirements.
3. The parties hereto shall within 21 days from the date thereof an application in Form No. 37-I with the appropriate authority appointed under Chapter XX-C of the IT Act, 1961."
4. The other agreement dt. 30th March, 1992, with Shri Ramesh D. Shah is also worded in similar language.
5. The assessee-company also paid the sale consideration of Rs. 40,41,001 on 24th Feb., 1992, by cheque. The other amount of Rs. 16,60,000 was also paid by cheque on the date of agreement, and it appears that both the cheques were cleared in the next accounting year.
6. In terms of the narration in the sale agreements the vendors applied for a no objection certificate from the appropriate authority under Chapter XX-C of the IT Act, but the same was received only 13th May, 1992. As the no objection certificate was not received in the year of account relevant for the asst. yr. 1992-93, the question that is thrown up by the AO is whether there is any transfer of the two premises in favour of the assessee before 31st March, 1992, and in the circumstances, whether the assessee is eligible for deduction of the cost of acquisition of these two premises from the sale proceeds of the other premises sold for arriving at the short-term capital gains in terms of s. 50 of the IT Act.
7. The assessee has worked out the short-term capital gains at a 'nil' figure as per the working given below :
Sale proceeds of the premises sold 52,21,000 Less : WDV of the premises sold
(Wrongly described as original
cost in the assessment order) 7,88,738 Premises transfer charges 28,470 New premises purchased 57,01,001 ------------
Short-term capital gains under s. 50 'Nil'.
8. The AO was of the view that as the no objection certificate from the appropriate authority was not received before 31st March, 1992, there was no transfer of the premises in favour of the assessee within the financial year 1991-92 and so the assessee-company is not eligible for taking advantage of the deduction of Rs. 57,01,001 for working out the short-term capital gains under s. 50. The AO has discussed the provisions of Chapter XX-C in detail.
9. Under the provisions of s. 269UC in Chapter XX-C, an agreement for transfer has to be entered into four months before the intended date of transfer. Under s. 269UL, the registering authority cannot register the conveyance unless a certificate from the appropriate authority functioning under Chapter XX-C to the effect that it has no objection for the transfer of the property in question for an amount equal to the apparent consideration mentioned in the agreement for transfer, is produced. Under the provisions of s. 269UK, a person shall not revoke or alter an agreement for the transfer or any transfer of the property made in contravention of sub-s. (1) of s. 269UK is declared to be void. The AO surveyed the provisions of Chapter XX-C and concluded that there was no transfer of the premises in question before 31st March, 1992.
10. The CIT(A) agreed with the reasoning of the AO. So, the Revenue authorities denied the assessee-company the deduction of Rs. 57,01,001 for the purposes of working out the short-term capital gains under s.
50. This is the grievance of the assessee and we are called upon to decide whether the assessee is eligible for deduction of Rs. 57,01,001 in terms of s. 50 of IT Act and Chapter XX-C of the IT Act.
11. Before us, the learned counsel for the assessee pleaded that s. 50 was introduced in place of the earlier provisions of s. 41(2) of the IT Act under which the difference between the sale proceeds and the WDV to the extent of the cost of the asset was brought to tax as normal business profit. Any such surplus on the sale of any individual asset was brought to tax under s. 41(2). The scheme of taxing the surplus in respect of each individual asset was replaced by the scheme of taxing the surplus in respect of a block of depreciable assets under s. 50. The surplus is brought to tax not under the head business but under the head short-term capital gains. One of the purposes of s. 50, it is argued, is to encourage investment in new depreciable assets. That is why deduction is given for new acquisition while no such deduction was permissible under s. 41(2). It is also pleaded that once a sale agreement is entered into, the assessee has done everything legally required to acquire new assets. The no objection certificate granted by the appropriate authority under Chapter XX-C operates retrospectively from the date of the sale agreement. It is also pleaded that under the terms of s. 50, the word used with reference to the new assets is "acquired" in contradistinction to words like "purchased" or "transferred". The word "acquired" which is used in sub-cl. (iii) of s. 50(i) is, it is argued, of a very amorphous nature and it is much wider than the specific terms like "purchased" or "owned" or "transferred."
12. The learned counsel for the assessee agreed that the issue raised in this appeal is res integra but sought to take support from certain decisions given under s. 54 of the IT Act.
13. Under s. 54, for claiming exemption from the levy of capital gains on the transfer of a residential property, another property has to be purchased two years after the date of the transfer of the original property. In this section, the word used is "purchased" and not "acquired."
14. The learned counsel for the assessee referred to the following decisions :
CIT vs. Dilipsingh Sardarsingh Bagga (1993) 201 ITR 995 (Bom); CIT vs. Mrs. Hilla J. B. Wadia (1995) 216 ITR 376 (Bom)
15. In the case of Dilipsingh Sardarsingh Bagga (supra), the Hon'ble Bombay High Court held that the assessee is entitled for depreciation on trucks even though they are not registered in his name under the Motor Vehicle Act. It is was held that registration under the Motor Vehicle Act is not an essential prerequisite for acquisition of ownership. However, in this case, there were no provisions analogous to those in Chapter XX-C of the IT Act which came in the way of transfer of title and so to our mind, this decision is distinguishable.
16. In the case of Mrs. Hilla J. B. Wadia (supra), it was held that the assessee is entitled to exemption under s. 54 in respect of a flat agreed to be purchased by her from a society for which she made substantial payments towards the sale consideration even though the relevant conveyance deed was not executed. The relevant portion of the judgment reads as follows :
"In the present case, the assessee had transferred the property in which she had a half share and which was being used for the purpose of her residence to the society. The question is whether she can be said to have constructed a house property for the purpose of her residence within a period of two years from that date. This provision will have to be construed in the context of the manner in which such residential properties are now being constructed in a city like Bombay where, looking to the cost of the land, co-operative housing societies are being formed for constructing a building in which flats are allotted to the members. This must also be viewed as a method of constructing residential tenements. What we have to see is whether the assessee has acquired a right to a specific flat in such a building which is being constructed by the society and whether she has made a substantial investment within the prescribed period which will entitle her to obtain possession of the flat so constructed and in which she intends to reside. The material test in this connection is domain over the flat and investment in it. The assessee satisfies both these conditions. She has acquired such a domain and has invested almost the entire requisite amount in it within a period of two years prescribed under s. 54."
17. It may be observed that what is laid down in the above case is domain over the flat and investment in it and not legal title to ownership. It is pleaded that in the case of the appellant, the conditions laid down by the Hon'ble High Court in the above case are satisfied. The cheques were delivered in the accounting year on the dates of the agreement even though they were cleared in the subsequent accounting year. According to the assessee, possession of the two premises was obtained and this fact has not been controverted by the Revenue authorities in their orders or even before us. So, it is claimed that in the light of the ratio of the decision of the Bombay High Court, it has to be regarded that the assessee has "acquired" the properties within the meaning of s. 50. It is also claimed that, as already mentioned, the word "acquired" is amorphous and much more non-specific than the word "purchased" used in s. 54 and considered by the Hon'ble Bombay High Court. Actually, the learned counsel for the assessee pleaded that even the sale agreement is sufficient for an assessee to claim that he has acquired a property within the meaning of s. 50. The satisfaction of other conditions like making payments of the sale consideration and taking possession are only additional positive factors.
18. The learned counsel for the assessee has also referred to the decision of the Tribunal, Hyderabad Bench, in the case of Rajaram vs. ITO (1987) 27 TTJ (Hyd) 22 : (1987) 19 ITD 141 (Hyd). In this case, it was held that for the purpose of availing exemption under s. 54, it would suffice if the date of agreement to purchase is within the prescribed period of one year, and mere fact that conveyance deed was executed after expiry of one year and that major part of consideration was paid after the prescribed period would not disentitle the assessee to exemption under s. 54. It was also clarified that the expression "purchase" occurring in s. 54 is not synonymous with "ownership" or "transfer of legal title" whereas in ss. 22 and 45, which are the charging sections creating tax liability, the words used are "owner" and "transferor" and they connote legal title and these words are conspicuous by their absence in s. 54.
19. The learned counsel for the assessee has also referred to the decision of the Tribunal, Bombay Bench 'A', in the case of Smt. Shilavati Agarwal vs. Fifth ITO (1993) 46 ITD 230 (Bom) to which one of us was a party. This case was decided against the assessee but the principle emanating from the decision is that the execution of a sale deed is not mandatory for considering whether an immovable property was purchased for the purpose of claiming exemption under s. 54. The relevant portion of the headnote reads as follows :
"The intention of the legislature seems to be that the assessee must invest the consideration received out of the sale proceeds of the original asset for acquiring new asset within the specified period. It is not necessary that within the specified period, the assessee must become the legal owner of the new asset.
The investment in house imply the payment of purchase consideration. Once the purchase consideration is paid within the specified period, the assessee should be deemed to have complied with the requirement of section, even if the legal ownership is not acquired. This is so because the assessee did his task and the delay which may result due to paper formalities cannot be attributed to the assessee and for this purpose the benefit of the section cannot be denied to him."
20. The learned counsel for the assessee pleaded that if the proposition made on behalf of the Revenue is accepted, the assessee who wants to buy a new asset and thus claim a suitable relief under s. 50 cannot enter into a transaction after say November or December of the financial year as almost three or four months have to be allowed to the appropriate authority for the issue of the no objection certificate. Such restriction on the option available to the assessee would go to defeat the very purpose of s. 50 which is supposed to encourage investment in new assets. He also referred to the decision of the Hon'ble Supreme Court in the case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC) and mentioned that in case of doubt, the Court has to resort to some construction to further the purpose of the statute. The relevant portion of the head-notes reads as follows :
"If the language of a statutory provision is ambiguous and capable of two constructions, that construction must be adopted which will give meaning and effect to the other provisions of the enactment rather than that which will give none."
21. The learned Departmental Representative contended that the decision of the Bombay High Court in the case of Dilipsingh Sardarsingh Bagga (supra) is in respect of trucks and a decision given in the context of movable assets is not applicable in the context of immovable properties. He has also mentioned that the word "acquired" figures in Expln. 6 to s. 43(1) where the "written down value" of an asset is defined and so, the word "acquired" has to be equated with the word "owned" which figures in s. 32 of the IT Act. He also relied on the following decisions given in the context of allowance of depreciation :
CIT vs. Tamil Nadu Agro Industries (1987) 163 ITR 61 (Mad); Golcha Properties (P) Ltd. vs. CIT (1987) 166 ITR 259 (Raj).
22. The learned Departmental Representative has also taken us through the provisions of Chapter XX-C and stressed that under this Chapter, the Central Government has a pre-emptive right to purchase the property in question and until the clearance is given for the transaction by the appropriate authority, no right or title whatsoever can pass from the transferor to the transferee and under the provisions of s. 269UC an applicant has to intimate the specific transaction four months before the date of the intended transfer and in the present case, the date of transfer could fall under s. 269UC only in the next financial year as correctly held by both the Revenue authorities. He has also referred to the decision of the Allahabad High Court in the case of Shailendra Kumar vs. Union of India (1989) 175 ITR 494 (All) for the proposition that the IT Act is a self-contained code and the taxability of receipts will have to be determined only within the scheme of the Act. The implication of the argument is that under the scheme of the Act, no transfer can take place till the no objection certificate is given by the appropriate authority and so the assessee-company cannot be regarded as having acquired the premises in question.
23. We are of the view that the assessee is entitled to succeed on this issue. We agree with the learned counsel for the assessee that the word "acquired" is amorphous and an asset can be acquired within the meaning of s. 50 without obtaining a valid legal title and we find some support for this view in Chapter XX-A which preceded Chapter XX-C.
24. Under s. 269-I, an order for acquisition passed by the appropriate authority becomes final only after the period for filing the appeal to the Tribunal expired. In case an appeal was filed, it became final only after the decision of the Tribunal or the High Court as the case may be, became available or the time for filing the appeal expired. In other words, an order of acquisition did not automatically vest the property acquired in the Central Government.
25. Under the provisions of s. 269-I(5), property vested in the Central Government only after the order of acquisition became final, i.e., after all the appellate proceedings were exhausted. This shows that there could be a considerable time gap between the acquisition and vesting of rights. In other words, acquisition of a property precedes and is not synonymous with the title to the property. To our mind, this seems to be an internal evidence available in the Act itself to support the proposition made by the learned counsel for the assessee that the word "acquired" used in s. 50 is of a very amorphous nature.
25.1. At any rate, the contentions of the learned counsel are supported by the decision of the jurisdictional High Court in the case of Mrs. Hilla J. B. Wadia (supra). The domain over the properties was obtained by the assessee and so we have to hold that the assessee acquired the premises in question. We are also of the view that the decision of the Tribunal cited by the learned counsel for the assessee supports his contention.
26. We are aware that the Hon'ble Rajasthan High Court in the case of Rajasthan Patrika Ltd. vs. Union of India (1995) 213 ITR 443 (Raj) has held that if a transferor gives possession to the transferee within the meaning of s. 53A of the Transfer of Property Act, as is done by the transferor in the present case, the transferor becomes liable for prosecution for violation of the provisions of Chapter XX-C. We, however, are faced with a different situation in the present case where the appropriate authority has not issued a notice for prosecution, but has only validated the transfer by issue of a no objection certificate. To our mind, this is clearly a distinguishable factor, apart from the fact that the apex Court in the case of Appropriate Authority vs. Tanvi Trading and Credits (P) Ltd. (1991) 191 ITR 307 (SC) has held that only two alternatives are open to the appropriate authority under Chapter XX-C, i.e., either to buy a property or to issue a "no objection certificate" leaving it to the parties to deal with the property. In the circumstances of the case, we are of the view that the assessee has acquired the premises in question within the meaning of s. 50 in the light of the decision of the jurisdictional High Court in the case of Mrs. Hilla J. B. Wadia cited supra. So, we have to hold that the assessee is entitled for deduction of the cost of the properties along with the related expenses from the sale proceeds of the other properties for arriving at the short-term capital gains in terms of s. 50 of the IT Act, 1961. The ground is allowed.
27. The next ground is that the CIT(A) erred in not granting depreciation on the two premises acquired vide agreements dt. 24th Feb., 1992, and 30th March, 1992 discussed above.
28. The learned counsel for the assessee relied upon the decision of the Hon'ble Supreme Court in the case of R. B. Jodha Mal Kuthiala vs. CIT (1971) 82 ITR 570 (SC) wherein it was held that the owner for the purpose of making an assessment under the head income from house property under s. 9 of the 1922 Act must be the person who can exercise the rights of the owner, not on behalf of the owner but in his own right. He has also relied upon the cases considered in the context of the liability to short-term capital gains under s. 50 discussed above.
29. The learned Departmental Representative has also relied upon the decisions cited by him supra.
30. We are of the view that this claim of the assessee cannot be entertained under the provisions of s. 32 of the IT Act. Under s. 32, it is mandatory that an asset has to be owned for the assessee to be eligible for depreciation. It has to be considered whether the assessee has really owned the two premises in question. As mentioned hereinbefore, sale agreements were executed, sale consideration was paid by cheque during the year of account and possession was also obtained. The sale deeds were not executed in the year of account and the cheques were cleared only in the subsequent year of account. In the course of the hearing, it was explained to us that in the present case, no sale deeds had to be executed and no registration was also necessary. Only the entries by way of a transfer of share certificates in the books of the concerned society had to be made and such entries were made only in the subsequent year of account.
31. There is a sharp cleavage of judicial opinion on the question as to what constitutes ownership within the meaning of s. 32. It has been held in some cases that it is not only the execution of the sale deed but its registration is also mandatory for the assessee to acquire ownership in respect of an immovable property.
32. In this context, reference may be made to the Commentary of Sampath Iyenger at page 1574 to 1576, Eighth Edition, Vol. 2. The learned author has observed that the principle enunciated by the Hon'ble Supreme Court in the case of R. B. Jodha Mal Kuthiala (supra) defining the scope of expression "property of which the assessee is owner" has been held to apply even in the case of the expression "the property owned by the assessee" used in s. 32 of the IT Act, 1961, in certain cases like CIT vs. U. P. State Agro Industrial Corpn. Ltd. (1981) 127 ITR 97 (All). In this case, it has been held that even when the title does not vest in the assessee in respect of a building, he is entitled for depreciation. A contrary view has been taken in certain cases like Parthas Trust vs. CIT (1988) 169 ITR 334 (Ker) (FB). The learned author has also observed that the latter view, i.e., the view taken by the Hon'ble Kerala High Court is, strictly speaking, the correct one even though there is need for legislative clarification or for liberal interpretation in view of the increasing number of property deals in which attempts are made to pass title without executing the proper registered conveyance by several means.
33. It may be observed that the Hon'ble Kerala High Court has clarified that the decision of the apex Court in the case of R. B. Jodha Mal Kuthiala (supra) is based only on the peculiar facts of the case where the property vested in the custodian of evacuee property in Pakistan. It has also to be observed that in the case of Mir Osman Ali Khan vs. CWT (1988) 167 ITR 888 (Bom), a case under the WT Act, the Court had to interpret the words "property belonging to the assessee" and held that so long as the sale deed is not registered, the asset will have to be included in the hands of the vendor. In the light of these decisions, we have to hold that the expression "owned" used in s. 32 implies a situation where conveyance is not only executed but is also registered.
34. In the present case, as already mentioned, the transfer of the share certificates in the books of the society in support of the transfer of the title has not been effected within the accounting year. Further, the transfer is barred by the provisions of Chapter XX-C. Under the provisions of this Chapter, there cannot be a transfer unless the appropriate authorities issue the no objection certificate. The prior and pre-emptive claim of the Central Government cannot be denied. In this view of the matter, we are of the view that it cannot be held that the assessee "owned" the premises within the meaning of s. 32 of the Act even though we have held hereinbefore that it has "acquired" those two premises within the meaning of s. 50 of the IT Act. In other words, even if the premises are included in the block of assets, no depreciation can be granted. To our mind, there is no irreconcilable contradiction in such a situation.
35. Before we part with this order, we would make it clear that we are not expressing any view in this appeal as to what would happen in a similar situation in the case of a seller for liability to capital gains tax in the light of the inclusive definition of transfer given in s. 2(47) of the IT Act. The ground regarding allowance of depreciation is rejected.
36. The assessee has also raised a ground that the CIT(A) erred in treating the return filed is invalid. This ground is not pressed and it is dismissed as not pressed.
37. In the result, the appeal is partly allowed.